Another Game Changer: The Dow-DuPont Merger

Another game changer has just come about, with the merger of chemical giants Dow Chemical Co. and DuPont. The all-stock merger will bring the value of the two companies to $130 billion. These two companies are the oldest and biggest manufacturers of chemicals in the U.S. and are said to be split into separate businesses – specialty products, materials and agriculture. But there are speculations that they would be facing extreme scrutiny from regulatory bodies due to the broad overlapping of both their agriculture businesses.

DowDuPont

The company, which will now be called DowDuPont, will have its existing shareholders, excluding preferred shares, owning about 50 percent of the merged company. Executive Chairman will be Andrew Liveris, who is the current CEO of Dow Chemicals, while the new CEO of DowDuPont will be Ed Breen, who is the Chief Executive of DuPont.

Shareholders of DuPont will receive 1.282 shares in the new company for every DuPont share they have, while shareholders of Dow Chemical will have one share in DowDuPont for every Dow Chemical share they have.

This is the biggest merger of 2015. It will allow both companies to realign their assets based on their deviating fortunes. Currently the two companies are faced with the lower demand for chemicals used in the farm because the prices of crops are falling. Their plastics businesses are on an even keel due to the low prices of natural gas and the strong dollar.

A game-changer

Liveris said that the transaction is a game-changer, which is the climax of their vision to bring the two companies known as the leaders in material science and innovation together. He added that the split into individual business focus is likely to happen in about 18 to 24 months after the closure of the deal, which would be around the middle of 2016. They are expecting to save around $3 billion in costs in their first two years as DowDupont, and are projecting to save an additional $1 billion. As of now, the biggest revenue earner is the material science company, which services the infrastructure, transportation and packaging industries, with a combined revenue in 2014 of almost $51 billion.

Analysts are looking at how this new merger will affect their biggest competitors, the German companies, Bayer AG and BASF SE. Another possible takeover bid they are looking into is whether U.S. company Monsanto will again lodge a bid for Syngenta AG, a company in Switzerland.

James Sheehan, an analyst from SunTrust Robinson Humphrey said that the focus would be on the agriculture market. There had been investors in the past, such as Nelson Peltz and Dan Loeb, who were pushing for these two companies to separate their business divisions into individual units.

It is expected that the new board will have 16 members, with each company providing 8 directors each. Dow Chemical will also buy their remaining stake in Corning Inc. that manufactures the iPhone’s Gorilla Glass. DuPont on the other hand announced that it plans to cut costs in 2016 by about $700 million, which will have a 10 percent impact on the company’s international workforce.

Image Copyright : money.cnn.com